opinion

“It’s our money.” With those
words, Rosneft head Igor Sechin responded three years ago to TNK-BP
minority shareholders asking about their prospects for one day
earning company dividends. That statement went viral. The company was
not paying dividends at the time and it was only after Prime Minister
Dmitry Medvedev intervened that Sechin had Rosneft make a formal
offer.

On Oct. 10, Medvedev signed the
order to sell Rosneft a 50.07 percent stake in Bashneft. The deal
closed on Oct. 12, with Rosneft paying 329.7 billion rubles ($5.2 billion) to the
Federal Property Management Agency.

As the new majority shareholder in
Bashneft, the law gives Rosneft until Nov. 17 to offer to buy out
the company’s minority shareholders. Two federal officials
confirmed that the offer will take place. “We will act in strict
accordance with current legislation,” said Rosneft press secretary
Mikhail Leontyev.

The offer must be set at either the
average weighted price on the stock exchange for the six months prior
to the transaction, or the price of the most recent transaction —
whichever is higher. Rosneft purchased ordinary Rosneft shares at a
price 24 percent higher than the average weighted price on the stock
exchange in the last six months. That means Rosneft would have to pay
218.3 billion rubles to buy out all of the shareholders, if they
decide to sell. That does not include the 76.9 billion rubles it
would pay for the stake held by the republic of Bashkortostan, which
so far has said it will not sell.

Rosneft, however, might still manage to
save its money. The State Duma is slated to look at a bill in
November that would free Rosneft of its obligation to make an offer
to Bashneft minority shareholders. The amendments to the law “On
Joint Stock Companies” were introduced this summer. The bill would
exempt a company from its obligation to offer to buy out minority
shareholders if the transaction was the result of “carrying out
acts of the president or acts of the government.” The bill’s
authors also propose making the law retroactive.

Senior officials deny any knowledge of
the bill.

Five of seven lawyers questioned by
the Vedomosti newspaper believe that the amendments would make it
possible for Rosneft to avoid having to make an offer.

The bill was originally written in
order to enable Gazprom to avoid making an offer to minority
shareholding gas distribution companies that were acquired from
Rosneftegaz by government decree, according to an Interfax report
citing a government agency.

This is not the first time legislators
proposed making a law retroactive. However, this time it could
violate the rights of Bashneft minority shareholders, lawyers said.
“This could affect the investment climate in the country,” added
Ilya Fedotov, a partner with Orient Partners.

This is one more step toward giving
the state a more privileged position in civil transactions at the
expense of private entities, complained Westside Advisors partner
Sergei Vodolagin. “It turns out that if a private entity purchases
a 30-percent stake in a public joint-stock company, it is obligated
to make an offer to buy out the other shareholders,” he said. “But
if the state is in the same position, it is not obliged.
The Russian Constitution recognizes and gives equal protection to
both private and public property,” Vodolagin said.

News of the bill has caused a scare
among investors, driving the company’s ordinary shares down by 6.37
percent on Friday, and its preferred shares by 4.41 percent. The
daily turnover in ordinary Bashneft shares doubled to approximately 1
billion rubles, up from the usual 400 million rubles – 500 million
rubles per day. Transactions involving preferred securities tripled
to 343 million rubles, up from 77 million rubles – 140 million
rubles before, according to a trader with one major bank.

However, other factors might have been
the cause: one Citi analyst believes that Rosneft must have
compelling reasons to consolidate Bashneft and that it will better
amplify the synergetic effect of the purchase.

The views expressed in opinion pieces do not necessarily reflect the position of The Moscow Times.